Section 20 Notice on a Financial Institution [2009] UKFTT 70 (TC)

FTT-Tax
Section 20 Notice on a Financial Institution
[2009] UKFTT 70 (TC) · 2009-03-30
[1]Section 20 Notice on a Financial Institution [2009] UKFTT 70 (TC) (30 March 2009) INCOME TAX/CORPORATION TAX TC00011 NOTICE UNDER TMA 1970 s.20 without naming the taxpayer – whether subs (8A) satisfied – yes – whether consent should be given to the Notice – yes THE SPECIAL COMMISSIONERS APPLICATION BY THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS TO SERVE A SECTION 20 NOTICE ON FINANCIAL INSTITUTION NO 8 IN RESPECT OF CUSTOMERS WITH UK ADDRESSES HOLDING NON-UK ACCOUNTS Special Commissioner: DR JOHN F AVERY JONES CBE Sitting in private in London on 26 March 2009 Stephen Rimmer of HM Revenue and Customs Enforcement and Compliance, and Dennis Dixon of the Solicitor's Office, HM Revenue and Customs, for the Applicants © CROWN COPYRIGHT 2009 ANONYMISED DECISION This is an ex-parte application by the Commissioners for HM Revenue and Customs for consent to serve a Notice under section 20(8A) of the Taxes Management Act 1970 on a Financial Institution ("the Financial Institution"). The Notice seeks documents about customers with UK addresses with non-UK bank accounts with the Financial Institution. The Revenue were represented by Mr Stephen Rimmer of HM Revenue and Customs Enforcement and Compliance ("the Officer"), and Mr Dennis Dixon of their Solicitor's Office.[2]In advance of this application I had a written brief from the Revenue consisting of 33 pages with numerous exhibits contained in a ring binder. The Financial Institution also made written representations in the form of an 11 page submission with 11 appendices. They ask me to give a written decision, a procedure that has been adopted before, which I agreed to do in this case.[3]Relevant parts of section 20 of the Taxes Management Act 1970 are:
"…(3) Subject to this section, an inspector may, for the purpose of enquiring into the tax liability of any person ("the taxpayer"), by notice in writing require any other person to deliver to the inspector or, if the person to whom the notice is given so elects, to make available for inspection by a named officer of the Board, such documents as are in his possession or power and as (in the inspector's reasonable opinion) contain, or may contain, information relevant to any tax liability to which the taxpayer is or may be, or may have been, subject, or to the amount of any such liability; and the persons who may be required to deliver or make available a document under this subsection include the Director of Savings. … (6) The persons who may be treated as "the taxpayer" for the purposes of this section include a company which has ceased to exist and an individual who has died; ... (7) Notices under subsection (1) or (3) above are not to be given by an inspector unless he is authorised by the Board for its purposes; and— ( a ) a notice is not to be given by him except with the consent of a General or Special Commissioner; and ( b ) the Commissioner is to give his consent only on being satisfied that in all the circumstances the inspector is justified in proceeding under this section. (8) Subject to subsection (8A) below, a notice under subsection (3) above shall name the taxpayer with whose liability the inspector (or, where section 20B(3) below applies, the Board) is concerned. (8A) If, on an application made by an inspector and authorised by order of the Board, a Special Commissioner gives his consent, the inspector may give such a notice as is mentioned in subsection (3) above but without naming the taxpayer to whom the notice relates; but such a consent shall not be given unless the Special Commissioner is satisfied— ( a ) that the notice relates to a taxpayer whose identity is not known to the inspector or to a class of taxpayers whose individual identities are not so known; ( b ) that there are reasonable grounds for believing that the taxpayer or any of the class of taxpayers to whom the notice relates may have failed or may fail to comply with any provision of the Taxes Acts; ( c ) that any such failure is likely to have led or to lead to serious prejudice to the proper assessment or collection of tax; and ( d ) that the information which is likely to be contained in the documents to which the notice relates is not readily available from another source. (8B) A person to whom there is given a notice under subsection (8A) above may, by notice in writing given to the inspector within thirty days after the date of the notice under that subsection, object to that notice on the ground that it would be onerous for him to comply with it; and if the matter is not resolved by agreement, it shall be referred to the Special Commissioners, who may confirm, vary or cancel that notice."
[4]The following is a recital of the factual basis as I understand it:(1) The Financial Institution has a branch in [one of the Channel islands]. It holds information on its computers in the UK on an estimated [ number withheld ] individual customers with UK addresses and non-UK bank accounts.(2) The Revenue are currently investigating the use of offshore accounts by UK residents, in the course of which an offshore disclosure facility took place during 2007. Although not in connection with a s 20 Notice to this Financial Institution a number of people with accounts in this Financial Institution made disclosures in which the tax loss was an average per case of £19,331 or a median loss per case of £2,257.(3) Of the persons with foreign bank accounts for which the Revenue have previously obtained information from other financial institutions the number making notifications under the offshore disclosure facility or otherwise being investigated that resulted or are expected to result in a tax loss was 25.24% of cases. This percentage excludes accounts of those for which the Revenue have no information about the person and cases where they know about the person but no overseas income has been disclosed and who have not taken part in the disclosure. It is therefore likely to be the minimum percentage.(4) Applying the 25% and the average and median tax loss to the number of customers gives a potential tax loss for customers of the Financial Institution of about £33m (average yield) or about £3.9m (median yield). The Officer estimates that the yield is likely to be between these two figures if the Notice is issued.[5]I emphasise that no allegation is made against the Financial Institution. Prior to the issue of the precursor letter the Financial Institution and the Revenue have had three meetings starting on 15 July 2008 (the Revenue say that these were without prejudice meetings and have not given me information about what was discussed; the Financial Institution did included the minutes in their representation, but in the circumstances I thought it better not to read them). As a result of this dialogue the Financial Institution has agreed the form of the Notice, but without agreeing that they should be issued.[6]The first representations made by the Financial Institution relate to the European Union Savings Tax Directive ("EUSTD"). They contend that because of the EUSTD the identity of many of those covered by the Notice is known to the Revenue so that subs (8A)(a) is not satisfied; the information obtained through EUSTD disclosures means that the information sought is readily available from another source so that subs (8A) (d) is not satisfied; accordingly it is not the case that only the granting of the Notice would prevent serious prejudice to the assessment or collection of tax as required by subs(8A)(c); also much of the documentation specified in the precursor notice is already in the Revenue's hands or can be obtained by virtue of the EUSTD. The Revenue have told the Financial Institution that of those making EUSTD disclosure for the period 1 July 2005 and 31 March 2006 86% had not disclosed overseas income before that date, and so this group should be investigated without requiring the Notice in relation to others.[7]The Revenue reply that information covered by the EUSTD from 1 July 2005 is excluded from the Notice and that the Revenue do not know which of those persons had accounts before that date; the alternative route of applying for s 20(3) notices for all of them is so burdensome that the information is not "readily available." The Revenue do not consider that the 86% means that evasion is this high; the taxpayers may not have had accounts before 1 July 2005, or the accounts may have been nearly empty, or they may not have been UK resident, and those disclosing some income may not have disclosed all of it.[8]I consider that by excluding those who have authorised exchange of information for EUSTD from 1 July 2005 (or later date of disclosure) the Revenue have gone as far as is necessary. Such information is no more than a guide to the past and it would be disproportionate to suggest that those customers should be individually investigated instead of being included in the Notice for earlier periods when the Revenue cannot know whether the earlier periods are relevant to them. It is always the case that the class will include some people who are known to the Revenue because they have complied fully with their tax obligations. As I said in Re an Application by Revenue and Customs Commissioners to Serve section 20 Notice (No 2) [2006] STC (SCD) 360 at [22]:
"Further, the solicitors say that the Revenue are not asking for documents relating to a class of taxpayers whose individual identities are not known to the Revenue (s 20(8A)(a)) because the class will include persons whose identities are already known to the Revenue. They argue that 'Unless they are removed, [the Financial Institution] will know any notice to be invalid in relation to some thousands of customers ostensibly caught by it; but the Financial Institution will not know which, with the result that it cannot know in respect of any customer whether it has a duty to disclose or not.' In their latest memorandum they clarify this by saying that known to the Revenue means known in this context, ie in the context of seeking an order for disclosure under s 20(8A). There are 9,289 customers of the Financial Institution with non-UK accounts whose identities are known to the Revenue, which the solicitors say shows that the evidence includes irrelevant names. It is important to note that the paragraph immediately following, s 20(8A)(b), requires that there are reasonable grounds for believing that any of the class of taxpayers may have failed (or may fail) to comply with any provision of the Taxes Acts. In spite of the solicitor's clarification of their argument I still consider that there is a logical flaw in it. If the class includes any members of the class who may have failed to comply, it must equally include other persons who have complied, whose identity will obviously be known to the Revenue. Their reading effectively rewrites paragraph (b) so as to require that there are reasonable grounds for believing that all members of the class may have failed to comply with their tax obligations. The inclusion as members of the class of persons who the Revenue know have complied with their tax obligations cannot possibly have been intended by Parliament to invalidate the whole of the notices. Taxpayer confidentiality prevents the Revenue from disclosing to the Financial Institution the names of the customers known to them."
Exactly the same applies to those for whom the Revenue have information for part of the period covered by the Notice.[9]The Financial Institution say next that the Revenue's calculation of tax loss is highly questionable. The Revenue say that in one respect the estimates in one of the earlier cases (the one from which I have just quoted) was overstated. The financial institution in that case had told them that there were X number of customers affected by the notice, whereas the correct figure turned out to be 17% of X. The Revenue made their £1.5bn estimate on the basis of X and as a result this was a serious over-estimate. This error had been made known to me earlier and it is right that it should be corrected in a document available to the public. Naturally the Financial Institution has relied on the earlier figure in their representation, and this is the cause of the Revenue's apparent overestimation. If this is corrected, the estimate originally made was in the range of 20% to 26% of cases resulting in a tax loss, and my decision was based on 20%, whereas the figure currently achieved is 25.24% as recorded above.[10]The Financial Institution next contends that the Revenue already hold information on the high-risk customers obtained from the EUSTD and the offshore disclosure facility. The Revenue say that those who have made disclosure under the offshore disclosure facility are less than 1% of those holding offshore accounts with the Financial Institution. The arguments relating to the EUSTD have been dealt with above. I agree with the Revenue that the disclosures so far made under the offshore disclosure do not mean that there is no longer a serious prejudice to the collection of tax.[11]The Financial Institution also raises a number of questions. In so far as they have not already been dealt with above they are as follows:(1) How have the revenue estimated the tax loss and whether any adjustment has been made to the nature of the Financial Institution's customers in [one of the Channel Islands]? The Revenue have explained the calculation which, as stated above, relies on the 25.24% statistic so far obtained from their investigations of offshore accounts. They have no information that would enable them to make adjustments that might differentiate their customers from those of other financial institutions.(2) What analytical work has been done in respect of the data obtained from the previous notices, the offshore disclosure facility and the EUSTD? The Revenue say that work on this is on-going and I have given the overall figure above. I was provided with some other analysis that they do not want to be disclosed.(3) How was the 86% potential tax defaulters been calculated and is it more reliable than projections? Why are the Revenue not using the EUSTD information prior to seeking consent to issuing the Notice? The figure relates only to the period from 1 July 2005 to 31 March 2006, which is all that is currently available. The Revenue do not consider that they are more reliable and do not see the limited information available as a substitute for the information sought by the Notice.[12]Finally, the Financial Institution estimates that the cost of complying with the Notice will in the region of £500,000. The Revenue say that they do not know how the figure is arrived at and this has not been the subject of discussions at their meetings. In the absence of fuller information and as there is an appeal mechanism available to the Financial Institution under s 20(8B) on the basis that compliance would be onerous, I consider that I should give limited weight to this factor in deciding whether to consent to the Notice. Conclusion[13]I do not consider that any of these representations should prevent the issue of the Notice. I have considered the meaning of the words of subs (8A) in a number of earlier applications ( Re an Application by Revenue and Customs Commissioners to Serve section 20 Notice [2006] STC (SCD) 360, [2007] STC (SCD) 202, 208, 216, and 222) and as no point has been made by the Financial Institution I shall adopt that analysis.[14]In the light of the above I am satisfied first, that the Notice relates to a class of taxpayers whose individual identities are not known. Secondly, in the light of the figures, that there are reasonable grounds for believing that any of the class of taxpayers to whom the Notice relates may have failed (or may fail) to comply with any provision of the Taxes Acts. Thirdly, that in the light of these figures and the Officer's estimate of a yield of between £3.9m and £33m, any such failure is likely to have led (or to lead) to serious prejudice to the proper assessment or collection of tax. And fourthly, that the information which is likely to be contained in the documents to which the Notice relates is not readily available from another source (and in particular most of the information required by the Notice is not known even for those whose identities are known to the Revenue). Accordingly, section 20(8A) is satisfied.[15]Finally, I consider whether under section 20(7) I am satisfied that in all the circumstances the Officer is justified in proceeding under section 20. In doing so I must weigh up the burden imposed on the Financial Institution with the benefit to the Revenue. In my view the information that the Revenue has already obtained raises serious questions that merit investigation and cannot be investigated by any other means. Accordingly I consent to the issue of the Notice.[16]I have written these reasons for my decision in the expectation that the Revenue will send it to the Financial Institution and their advisers and if it is necessary I authorise them to do so. If there is anything in this decision that the Revenue do not want to disclose to the Financial Institution I authorise them to apply to me for it deletion before it is sent to the Financial Institution. If either the Revenue or the Financial Institution have suggestions for anonymisation I shall take these into account before authorising publication. JOHN F. AVERY JONES SPECIAL COMMISSIONER RELEASE DATE: 30 March 2009 SC 2008/09